Week 25 - IAS 7 Statement of Cash Flows - Slides

Week 25 #LearnOn
IAS 7: STATEMENT OF CASH

FLOWS
Step‐by‐step guide to:
• Take you through the Standard; and
• Help you to understand the theory and application.
STATEMENT OF CASH FLOWS ‐ Introduction
The following are used in these slides:
Descriptive accounting (DA) example;
Class example;
Very important;
Question and suggested solution; and
New learning outcome.
Abbreviations:
SoCF ‐ Statement of cash flows;
SFP ‐ Statement of financial position;
SCE ‐ Statement of changes in equity;
SP/L ‐ Statement of profit or loss; and
OCI ‐ Statement of other comprehensive income.
2
• You are going to study IAS 7 Statement of Cash Flows during
week 25 and 27.
• In terms of IAS 1.9 and .10, a statement of cash flows is one of
the components of a complete set of financial statements
prepared by entities that provide information about the
financial position, performance and changes in financial
position of such entities.
• The statement of cash flows enables the users of financial
statements to formulate an opinion and make better estimates
of the cash performance of an entity.
3
• You already dealt with IAS 7 Statement of Cash Flows in a
previous year of studies. It is however important that you
revise the basic ‘working’ of the statement of cash flows
and to make sure that you understand the effect, if any, of
different transactions on the statement of cash flows.
• The purpose of the statement of cash flows is to provide
users with information regarding the movement in cash.
• It is very important to understand that only transactions that
go through ‘Bank’ (the debit/credit leg of the transaction) is
going to have an effect on the statement of cash flows.
4
STATEMENT OF CASH FLOWS ‐ Excluded
Content in IAS 7 that is excluded:

• Foreign currency cash flows (IAS 7.25 – 28);
• Investment in subsidiaries, associates and joint ventures
(IAS 7.37 – 38);
• Changes in ownership interests in subsidiaries and other
businesses (IAS 7.39 – 42B); and
• Disclosure of segmental cash flows (IAS 7.52).
Please do not highlight any of these paragraphs in your IFRS standard

and make sure that you do not waste time on these paragraphs.
5
STATEMENT OF CASH FLOWS –
Learning outcomes
At the end of week 25, you should be able to:
• Demonstrate an understanding of the basic theory of IAS 7;
• Understand the different activities (operating, investing
and financing) that are used to report cash flows;
• Understand the process and different methods (direct and
indirect) of preparing statements of cash flows;
• Recognise interest and dividends correctly in the statement
of cash flows;
• Recognise taxation correctly in the statement of cash flows;
• Apply the theory in discussion questions; and
• Prepare the statement of cash flows in accordance with
International Financial Reporting Standards (IFRSs).
6
Learning outcomes
At the end of week 27, you should be able to:
• Recognise taxation (including VAT) correctly in the statement
of cash flows; and
• Prepare the statement of cash flows (if the entity is
registered for VAT) in accordance with International Financial
Reporting Standards (IFRSs).
7
STATEMENT OF CASH FLOWS ‐ Objective
Provides useful information to access an entity’s:
• Ability to generate cash; and
• Needs to utilise that cash.
IAS 7 therefore provides guidelines on how entities should
present the historical changes in cash and cash equivalents by
means of the following classifications:
• Operating activities;
• Investing activities; and
• Financing activities (IAS 7.1).
The net cash in/outflow from these activities provides the

user with the total net movement in cash for the year.
8
STATEMENT OF CASH FLOWS – Scope
All entities should prepare the statement of cash flows as part

of a complete set of financial statements for each period for
which financial statements are presented (IAS 7.1 and 3).
9
STATEMENT OF CASH FLOWS – Benefits
Users may evaluate the following:
• Changes in net assets;
• Financial structure;
• Ability to generate cash;
• Ability to effect the amounts and timing of cash flows in order to
adapt to changing circumstances and opportunities;
• Comparability with other companies;
• Historical cash flow info used as indicator of future cash flows; and
• Useful in checking accuracy of past assessments of future cash flows
(IAS 7.4 and 5).
The users of financial information use the amounts and information in the
statements to make important investments or strategic decisions. An entity’s
available cash, as well as cash management are very important information
to the users.
10
STATEMENT OF CASH FLOWS ‐ Definitions
Study all the definitions in IAS 7.6. These are all important
definitions that are further explained in the following slides:
• Cash – slide 12;
• Cash equivalents – slide 12 and slide 28;
• Cash flows;
• Operating activities – slides 14 to 17 and slides 24 and 25;
• Investing activities – slides 18 and 19; and
• Financing activities – slides 20 to 23.
11
STATEMENT OF CASH FLOWS – Cash and
cash equivalents
• Cash comprises cash on hand and demand deposits (IAS 7.6);
• Cash equivalents are normally held for short‐term cash
commitments rather than for investment purposes (IAS 7.7);
• Bank borrowings (other than overdrafts) are generally
considered to be financing activities;
• Bank overdrafts are included as cash and cash equivalents
(IAS 7.8);
• Movements between cash and cash equivalents are excluded
from cash flows (IAS 7.9).
• Short‐term is usually viewed as three months or less from the date of
acquisition.
• Cash flows from operating activities +/‐ cash flows from investing
activities +/‐ cash flows from financing activities = Net movement in
cash and cash equivalents.
12
Presentation
Classified by:
• Operating activities;
• Investing activities;
• Financing activities; and
• Net movement in cash and cash equivalents (total of the
above) (IAS7.10).
Sometimes a single transaction is presented as more than one
type of activity. For example the repayment of a loan includes
both interest (operating activity) and capital (financing
activity) (IAS7.12).
An example of a transaction representing more than one type of activity is
the repayment of a loan. The repayment on the loan (the capital amount)
is presented as a financing activity and the finance cost as an operating
activity.
13
STATEMENT OF CASH FLOWS – Operating
activities
• Indicator of the extent to which an entity’s operations were
successful in generating cash to:
• Repay loans;
• Maintain operating capability;
• Pay dividends; and
• Make new investments (IAS 7.13).
• Operating activities are normally the principal revenue‐
producing activities of the entity, and include other activities
that do not constitute investing or financing activities (IAS 7.14).
• Securities and loans held for dealing or trading purposes are
classified as operating activities (IAS 7.15)
• Operating activities refer to an entity’s day-to-day operations, in the
normal course of business.
• Note that loans will usually be classified as financing activities but,
what about an entity such as “SA Home Loans” - their business is to
‘operate’ in loans and therefore for them, loans will be operating
activities.
14
activities: reporting
• Cash flows generated from operating activities shall be
reported in one of two ways:
• The indirect method; or
• The direct method (recommended) (IAS 7.18).
• Under the indirect method determine net cash flow from
operating activities by adjusting profit/loss for the effects
of:
• Changes during the period in inventories and operating receivables
and payables;
• Non‐cash items (for example depreciation);
• Any deferrals or accruals of past or future operating cash receipts
or payments; and
• Other items for which the cash effects are investing or financing
cash flows (IAS 7.20).
15
• Under the indirect method cash generated by operations
comprise two disclosable components:
• Profit before working capital changes – adjust for investment
income, interest charges, items that do not involve cash charges
and items disclosed else were ; and
• Changes in working capital.
• Under the direct method disclose major classes of gross
cash receipts and gross cash payments (IAS 7.18(a)).
• Adjust sales, cost of sales and other items in the statement
of comprehensive income for:
• Changes during the period in inventories and operating receivables
and payables;
• Other non‐cash items; and
• Other items for which the cash effects are investing or financing
cash flows (IAS 7.19)
16
• Under the direct method cash generated by operations is
disclosed as the difference between:
• Gross cash receipts from customers; and
• Gross cash paid to suppliers and employees.
• Note that it is only the reporting of the operating activities
that is effected by the use of the direct/indirect method.
DA EXAMPLE:
5.1 ‐ Indirect and direct method.
Comments on DA example 5.1:
This is a ‘picture’ of what the reporting is going to look if either the
direct/indirect method is used.
The amount calculated for cash flows from operating activities using the
direct/indirect method is the same = R280 500.
17
STATEMENT OF CASH FLOWS – Investing
activities
• Investing activities are the acquisition and disposal of
long‐term assets and other investments not included in
cash equivalents (IAS 7.6).
• Indicator of the extent to which expenditures have been
made for resources intended to generate future income
and cash flows.
• Some examples are payments to acquire/proceeds from
disposal of:
• PPE, intangibles and other long term assets;
• Equity or debt instruments in other entities; and
• Loans receivable and advances (IAS 7.16).
• It is only an asset that was recognised in the statement of
financial position that are eligible for classification as
investment activities. 18
activities
• Note that revaluations, impairments, depreciation and
scrapping of assets are non‐cash transactions.
• The initial recognition of assets acquired through a lease or
bond will also not lead to cash flows (IAS 7.44).
• Distinguish between maintenance of or increase in
operating capacity (IAS 7.51).
19
STATEMENT OF CASH FLOWS – Financing
activities
• Financing activities are activities that result in changes in
the size and composition of the contributed equity and
borrowings of the entity (IAS 7.6).
• Useful in predicting claims on future cash flows by
providers of capital to the entity.
• Some examples are:
• Proceeds from issuing shares, debentures etc.;
• Payments to acquire or redeem own shares;
• Repayments of amounts borrowed;
• Payments by lessee for reduction of outstanding lease liability; and
• Proceeds / payments on sale / purchase of partial interest in existing
subsidiary (IAS 7.17).
20
STATEMENT OF CASH FLOWS – Financing
activities
• Financing activities are the activities that entities are
involved in to obtain financing to acquire resources to
generate income or other economic benefits.
• If a lessee acquires an asset through a lease agreement,
the entry is:
• Dr. Right‐of‐use asset and Cr. Lease liability.
• It should be clear that the transaction did not result in a cash outflow
(neither the debit or credit entry went through bank) and the
transaction therefore has no effect on the statement of cash flows.
• If the lessee makes a repayment on the lease, the entry is:
• Dr. Lease liability, Dr. Finance cost and Cr. Bank.
• This transaction is eligible to be accounted for in the SoCF since
one entry (the credit) went through bank.
• Two activities are effected as part of the SoCF namely financing
activities (lease liability) and operating activities (finance cost). 21
and financing activities: reporting
• Disclose major categories of gross cash receipts and
payments arising from investing and financing activities,
except to the extent that cash flows described in paragraphs
22 and 24 are allowed to be reported on a net basis
(IAS 7.21).
• Gross disclosure is required and cash payments and receipts
may not be netted off against each other.
• For example, loans paid and loans received must be
presented separately.
• Some cash flows may be reported on a net basis. Refer to
IAS 7.22 – 24 for examples.
22
and financing activities: reporting
DA EXAMPLE
5.3 – Financing section of the statement of cash flows.

This is a ‘picture’ of what the financing activities section of the SoCF
is going to look like.
Note that cash inflows (debit the bank) are amounts without
brackets and cash outflows (credit the bank) are amounts between
brackets. The net cash flows from financing activities, in this example,
is and outflow because the amount is between brackets (R150 000).
23
STATEMENT OF CASH FLOWS – Interest
and dividends
• Disclose separately (IAS 7.31).
• Do not include accrued or unpaid amounts – adjust.
• Total amount of interest paid should be disclosed in SoCF
whether it has been recognised as an expense in P/L or
capitalised in accordance with IAS 23 Borrowing costs (IAS
7.32).
• Treat as operating activities – some controversy (IAS 7.33
and 34).
• For this module, interest an dividends shall be classified as
operating activities.
24
STATEMENT OF CASH FLOWS – Taxes on
income
• Disclose separately (IAS 7.35).
• Treat as operating activities, unless it is practicable to
match the tax cash flow with individual transactions
classified as investing or financing activities (IAS 7.36).
• Note that deferred tax is not a flow of cash!
• Reconstruct the income tax expense, deferred tax and SARS
accounts to calculate the actual amount paid to SARS.
• For this module, tax paid will be classified as operating
activities.
25
STATEMENT OF CASH FLOWS – Non‐cash
transactions
• Investing and financing activities that do not require use of
cash shall be excluded from the statement of cash flows
and disclosed elsewhere (IAS 7.43).
• Examples of non‐cash transactions are:
• Assets acquired by means of a lease;
• Acquisition of an asset by means of an equity issue; and
• Conversion of debt to equity.
26
STATEMENT OF CASH FLOWS – Non‐cash
transactions
DA EXAMPLE:
5.2 – Assets acquired without cash outflows or via
indirect cash flows.
Case 1: Asset acquisition financed via a mortgage bond
• Refer to the journal – no entry went through the bank, in other words no
cash flow took place and therefore there is no effect on the SoCF.
Case 2: Asset acquired in exchange for shares issued
Case 3: Asset acquired under a lease agreement
27
Components of cash and cash equivalents
• Disclose components of cash and cash equivalents and
present a reconciliation of the amount in the statement of
cash flows with the equivalents items in the statement of
financial position (IAS 7.45).
DA EXAMPLE:
5.4 – Reconciliation between cash and cash equivalents.
This is a ‘picture’ of the reconciliation between the SoCF and the SFP
amounts for cash and cash equivalents.
Note that the movement between the opening and closing balances on
the bank account in the statement of financial position ((R150 000 money
in the bank – (R100 000) overdraft = (R250 000)) = The amount calculated
as the net decrease in cash and cash equivalents in the statement of cash
flows (operating + investing + financing activities = (R250 000)).
28
STATEMENT OF CASH FLOWS – Other
disclosure
• Disclose the aggregate amount of cash flows that represent
increases in operating capacity separately from those cash
flows that are required to maintain operating capacity (IAS
7.51).
• This disclosure is part of financing activities. The following
headings may be used:
• Investments to maintain operating capacity; and
• Investments to expand operating capacity.
DA EXAMPLES THAT ARE N/A TO THIS MODULE: 5.5 and 5.7.
29
STATEMENT OF CASH FLOWS – Procedures
for the preparation of the SoCF
• The SoCF is based on the pure cash concept i.e. only
transactions for which one entry affects the bank account are
included in the SoCF.
• Best practice procedure: By reconstructing different T‐
accounts, it is easy to calculate the amounts (entries that
went through the bank) that are reported on the SoCF.
• The statements of financial position (SFP) (current and
comparative), the statement of changes in equity (SCE)
(current) and the SP/L and OCI (current) are used as the
starting point for the preparation of the SoCF.
30
• If, for example, the SFP shows the opening balance for land at
and amount of R800 000 (comparative) and the closing
balance as R1 000 000 (current), it should be clear that there
has been movement in the balance of R200 000 (R1 000 000 –
R800 000) during the current year.
• If the movement is because land has been acquired during the year
for cash, the R200 000 is reported as part of financing activities in
the SoCF.
• If, however land has been revalued during the year with R200 000,
there is no effect on the SoCF.
31
CE 1 ‐ Cash generated from operations and tax paid
REQUIRED:
By using the direct method, disclose “the cash flow
generated from operations” section and "tax paid" in the
statement of cash flows for the year ended 31 March 20.17.
Ignore VAT.
Use the following extract that was obtained from the trail
balance of S (next slide):
32
STATEMENT OF CASH FLOWS – Procedures for
the preparation of the SoCF
20.17 20.16
Extract from the trail balance of S Rand Rand
Debits Reference Reference
Trade receivables B 18 300 A 22 650
Inventories F 19 300 E 21 850
Cost of sales G 62 400 52 300
Other expenses ‐ salaries paid T 8 594 6 700
Income tax expense O 24 474 23 226
Credits
Deferred tax M 35 000 L 20 000
Trade payables J 25 870 I 27 500
SARS R 9 000 Q 12 000
Revenue C 96 000 89 650
33
STATEMENT OF CASH FLOWS – Procedures for the
preparation of the SoCF
With reference to the required, the following should be presented as part
of the SoCF:
S Ltd
Extract from the statement of cash flows for the year ended 31 March 20.17
Cash flow from operating activities

Cash receipts from customers (answer on slide 35)
Cash payments to suppliers and employees (answer on slides 36
and 37)
Cash generated from operations
Tax paid (answer slides 38 and 39)

To calculate the amounts, we are going to reconstruct the necessary T‐
accounts.
34
STATEMENT OF CASH FLOWS – Procedures for
the preparation of the SoCF
• To calculate the amount of cash receipts from customers, the trade
receivables (debtors) account is reconstructed.
• Note the cross‐referencing (A, B, C and D (slide 33)) from the trail balance.
• Important: To close off the trade receivables account the closing balance
(18 300) is put on the credit side, and brought down on the debit side of
the account.
• In the T‐account the amount received from trade receivables (100 350) is
calculated as the balancing amount (opening balance (22 650 SFP) plus
revenue/sales (96 000 SP/L) minus the closing balance (18 300 SFP) or
(118 650 – 18 300))
SoCF
Trade receivables
Opening balance A 22 650 Bank D 100 350
Revenue C 96 000 Closing balance B 18 300
118 650 118 650
Add the entries
Closing balance 18 300 on the debit
35
side.
• To calculate the amount of cash payments to suppliers and employees, the
inventories and trade payables (creditors) accounts are reconstructed.
• The inventories account is reconstructed to calculate the amount of inventory
that has been purchased during the year from creditors (trade payables), this is
a debit entry in the inventory account . By recognising the credit entry for the
purchase inventory in the trade payables account, the account may be closed
off to calculate the total amount paid in cash to the trade payables during the
year (H – note the debit and credit entries).
• Note the cross‐referencing (E, F, G, I and J (slide 33)) from the trail balance.
• Important: To close off the trade payables account the closing balance (25 870)
is put on the debit side, and then brought down on the credit side of the
account.
• In the T‐account (trade payables) the amount paid to trade payables
(61 480) is calculated as the opening balance (27 500 SFP) plus inventories
purchased (59 850 Inventories account) minus the closing balance (25 870 SFP)
or (87 350 ‐ 25 870).
36
Inventories
Opening balance E 21 850 Cost of sales G 62 400
Trade payables H 59 850 Closing balance F 19 300
81 700 81 700
Closing balance 19 300
SoCF
Trade payables
Bank K 61 480 Opening balance I 27 500
Closing balance J 25 870 Inventories H 59 850
87 350 87 350
Add the entries
on the credit 37
side
• To calculate the amount of tax paid the deferred tax, income tax
expense and SARS (creditor) accounts are reconstructed.
• To calculate the amount paid to the SARS during the year by
reconstructing the SARS account, we have to calculate the amount of
current tax. Before we can calculate current tax, by reconstructing the
income tax expense account, deferred tax should be calculated by
reconstructing the deferred tax account.
• The sequence of the accounts to be reconstructed: Deferred tax, Income
tax expense and then SARS. Note the cross‐referencing (N and P)
between these accounts.
• Note the cross‐referencing (L, M, O, Q, and R (slide 33)) from the trail
balance.
• In the T‐account (SARS) the amount of tax paid (12 474) is calculated as
the opening balance (12 000 SFP) plus current tax (9 474 Income tax
expense account) minus the closing balance (9 000 SFP).
38
Deferred tax
Opening balance L 20 000
Closing balance M 35 000 Profit or loss N 15 000
35 000 35 000
Income tax expense

Deferred tax N 15 000 Profit or loss O 24 474
Current tax P 9 474
24 474 24 474
SARS
Bank S 12 474 Opening balance Q 12 000
Closing balance R 9 000 Current tax P 9 474
21 474 21 474
Closing balance 9 000 39
When Bank
Now we are ready to answer the question.
is debited
S Ltd
Extract from the statement of cash flows for the year ended
31 March 20.17
Cash flow from operating activities
Rand
Cash receipts from customers (slide 35) D 100 350 Inflow
Cash payments to suppliers and employees
(61 480 (slide 37 K) + 8 594(T)) (70 074)Outflow
Cash generated from operations 30 276 Net inflow
Tax paid (slide39) S (12 474)Outflow

Salaries paid – When Bank
Trail balance is credited
40
STATEMENT OF CASH FLOWS – Test and
exam technique
• The purpose of the SoCF is to analyse and report the cash
flows of the entity.
• To identify cash flow we need to eliminate all credit (not
for cash) transactions and non‐cash items (e.g.
depreciation).
• To reconstruct T‐accounts is a method to calculate the cash
flows as the balancing figures in the accounts. It is however
important to know what entries are included in each
account. For example, if there are bad debts and
allowances for credit losses recognised it should be taken
into account in the trade receivables account before the
amount for cash received from trade payables are
calculated.
41
exam technique
The following steps may be followed to answer and SoCF
question:
• STEP 1: Read the required. Make sure you understand what
is required. Sometimes it is not the full SoCF (with notes)
that are required but only certain parts of it (eg. only the
cash flow from investing activities). Sometimes some parts
of the SoCF are excluded (e.g. the reconciliation of cash
and cash equivalents or the notes).
• STEP 2: Prepare the format. Know the format of the SoCF
and the framework for the calculations. Remember the
heading.
• STEP 3: ‘Scan’ the given information.
• SFP: Information that may be used immediately are the bank
balances (opening and closing) that are filled in on the SoCF
(depending on what is required) as cash and cash equivalents
(beginning and end of the period).
• Start the “dividends paid” and “tax paid” reconciliations. 42
exam technique
• STEP 3: ‘Scan’ the given information.
• SCE: Fill in dividends declared in the dividends reconciliation. The
opening and closing balances of shareholders for dividends, from
the SFP may be used to complete the reconciliation. The balancing
amount is the amount paid during the year which are included in
the SoCF.
• SPL and OCI: Read the given information and as far as possible use
the information immediately at all relevant places. This saves a lot
of time, but to manage this you will have to work through many
questions without the suggested solution and against time.
• For example ‐ Finance costs:
• Use in the calculation of the cash payments to suppliers and
employees (item shown elsewhere in the SoCF); and
• Immediately fill in on the face of the SoCF – operating
activities.
43
exam technique
• STEP 4: Work through the additional information
• It is most likely that a some sort of PPE reconciliation will have to be
prepared for example to calculate the amount of proceeds on a sale
of PPE, the amount of a revaluation or the amount of new
acquisitions.
• Note that the accumulated depreciation reconciliation is not
necessary (there is no cash flow entry in this account) unless the
amount of depreciation is not given (for the calculation of cash paid
to suppliers and employees) or if PPE have been disposed of to then
calculate the proceeds with disposal.
• If the cost and accumulate depreciation are given, you can decide
to prepare separate reconciliations or to prepare a carrying amount
reconciliation. Some questions will provide only the carrying
amount in the SFP, and then you’ll have to prepare the PPE
reconciliation using carrying amounts.
• Use the following ‘formula’ to calculate missing information:
Proceeds (cash received) – CA (cost less accumulated depreciation)
= Profit/loss on disposal of asset. 44
exam technique
• STEP 5: Complete the SoCF
• Quickly balance all T‐accounts that have been
reconstructed and complete all outstanding calculations.
• Note that a debit balancing amount in an account
means an outflow of cash (bank has been credited) and
a credit balancing amount means and inflow of cash
(bank has been debited).
• Make sure that all SFP accounts (for which the closing
balance is not the same as the opening balance) have
been used in your calculations.
45
exam technique
• The “cash payments to suppliers and employees”
calculation (direct method) must be adjusted for the
following:
• Non‐cash flow items;
• Items shown elsewhere in the SoCF; and
• Profit/loss (on the disposal of assets/ investments)
which forms part of proceeds.
• Complete the SoCF.
With all this knowledge you are almost ready to prepare a SoCF but
before you do so, work through DA 5.7 Comprehensive example. The next
slides will give you some guidance.
46
STATEMENT OF CASH FLOWS – DA 5.7
Comprehensive example
REQUIRED:
Prepare the statement of cash flows for Alpha Ltd for the year
ended 30 June 20.17 using the direct method.
Comments on DA 5.7 Comprehensive example: Operating
activities
• To calculate the amounts for cash receipts from customers
and cash paid to suppliers and employees, it is necessary to
reconstruct the following T‐accounts:
• Debtors – note the allowance for credit losses;
• Inventories; and
• Creditors.
• Refer to DA page 108 (21st edition) for the T‐accounts and the
SoCF – the cash generated from operations (direct method).
47
activities
• If the SoCF is prepared using the direct method a reconciliation
of profit before tax with cash generated from operations, as a
note to the financial statements, should be prepared (DA page
109).
• The information presented in the note, is the same information
presented if the SoCF is prepared using the indirect method.
Compare the note with the SoCF (indirect method) (DA page
107) to see that it is the same.
• Profit before tax should be adjusted for:
• Non‐cash flow items (depreciation);
• Items shown elsewhere in the SoCF (Gain/loss, credit losses
and interest).
48
activities
• When the inventory balance increases from the prior period,
it is an indication that the company purchased more
inventory in the current year; therefore there will be a cash
outflow in the SoCF for the current period.
• When the creditors (trade payables) balance decreases from
the prior period, it is an indication that the company settled
more of their outstanding debt in the current year, instead of
obtaining credit from their suppliers. Therefore there will be
a cash outflow in the statement of cash flows for the current
period. The counter‐arguments will also hold.
49
activities
• Tax paid – Reconstruct the T‐accounts in the following
sequence (DA page 109):
• Deferred tax – note the recognition of the deferred tax on the
revaluation at the CGT rate. Calculate the income tax expense
amount;
• Income tax expense – calculate the current tax amount (SARS); and
• SARS – calculate the amount of tax paid (cash outflow) to SARS during
the year.
50
activities
• Dividends paid – it is not always necessary to reconstruct the
T‐account, you may get to the correct answer by only doing a
calculation. Be sure that you add the credit amounts
together and then deduct the debit amounts.
Dividends paid
Bank 822 Opening balance SFP 800
Closing balance SFP 1 210 Dividends SCE 1 232
2 032 2 032
51
Comments on DA 5.7 Comprehensive example – Investing
activities
Land
Opening balance SFP 1 240 Disposal ‐ given 540
Revaluation ‐ given 2 000
Bank 1 300 Closing balance SFP 4 000
4 540 4 540
Closing balance 4 000 Additions
to land
Land ‐ Disposal
Land 540 Bank 1 200
Gain on disposal ‐ given 660
1 200 Proceeds 1 200
52
Comments on DA 5.7 Comprehensive example – Investing activities
Machinery ‐ Cost
Opening balance SFP 1 400 Disposal ‐ given 200
Bank ‐ given 400 Closing balance SFP 1 600
1 800 1 800
Machinery ‐ Accumulated depreciation
 Disposal 160 Opening balance SFP 740
Closing balance SFP 800 Depreciation ‐ given 220
960 960
Machinery ‐ disposal
Machinery ‐ cost 200 Accumulated depreciation 160
Loss on disposal ‐ given P/L 20
 Bank 20
200 200
Proceeds 53
Comments on DA 5.7 Comprehensive example – Investing activities
With reference to the previous slide:
• Note that it depends on the given information which T‐accounts
are going to be reconstructed. In this example both the cost and
the accumulated depreciation of PPE have been given. If only the
carrying amounts are given, only one T‐account (at the carrying
amount) needs to be reconstructed which will include the cost
and the accumulate depreciation.
• To be able to calculate the proceeds on the sale of the machinery,
the cost and the accumulate depreciation of the machinery that
has been sold, should be known. The accumulated depreciation is
therefore calculated by reconstructing the accumulate
depreciation account for machinery.
• For test purposes it is not necessary to show the closing balance
that is brought down.
54
Comments on DA 5.7 Comprehensive example – Financing
activities
• Proceeds from long‐term borrowings – include amounts
from non‐current liabilities and current liabilities.
• Proceeds from the issue of share capital is the difference
between the closing and opening balances for share capital.
• Very important: All cash inflows (debit the bank) are indicate
without brackets (positive amount) and all cash outflows
(credit the bank) are indicated with brackets (negative
amount).
55
STATEMENT OF CASH FLOWS – Homework
questions
QUESTIONS:
IAS 7.1 – Bats Ltd ‐ Complete SoCF (direct method); and
IAS 7.4 – Halumi Ltd ‐ Complete SoCF (direct method).
56

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Week 25 #LearnOn

IAS 7: STATEMENT OF CASH

Content in IAS 7 that is excluded:

Please do not highlight any of these paragraphs in your IFRS standard

The net cash in/outflow from these activities provides the

All entities should prepare the statement of cash flows as part

Comments on DA example 5.3:

DA EXAMPLES THAT ARE N/A TO THIS MODULE: 5.5 and 5.7.

Cash flow from operating activities

Tax paid (answer slides 38 and 39)

Income tax expense

Tax paid (slide39) S (12 474)Outflow

IAS 7.4 – Halumi Ltd ‐ Complete SoCF (direct method).

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